the delaware state fair, inc. financial statements ......note 1 - summary of significant accounting...

DECEMBER 31, 2017 AND 2016

THE DELAWARE STATE FAIR, INC.

FINANCIAL STATEMENTSAND

SUPPLEMENTARY INFORMATION

Exhibitor

ScheduleFinancial Statements

Independent Auditor’s Report

Statements of Financial Position - Income Tax Basis A

Statements of Activities and Changes in Net Assets - Income Tax Basis B

Statements of Cash Flows - Income Tax Basis C

Notes to Financial Statements

Supplementary Information

Independent Auditor's Report on the Supplementary Information

Schedules of Revenue and Support 1

Schedules of Operating Expenses 2


CONTENTS


Board of DirectorsThe Delaware State Fair, Inc.Harrington, Delaware

Report on the Financial StatementsWe have audited the accompanying financial statements of The Delaware State Fair, Inc. (the Organization), which comprise the statements of financial position - income taxbasis, as of December 31, 2017 and 2016, and the related statements of activities andchanges in net assets - income tax basis and cash flows - income tax basis for the yearsthen ended, and the related notes to the financial statements.

Management's Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with the basis of accounting the Organization uses for incometax purposes; this includes the design, implementation, and maintenance of internalcontrol relevant to the preparation and fair presentation of financial statements that arefree from material misstatement, whether due to fraud or error.

Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on ouraudit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the Organization's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe Organization's internal control. Accordingly, we express no such opinion. An auditalso includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well asevaluating the overall presentation of the financial statements.

Independent Auditor’s Report

The Delaware State Fair, Inc.Page -2-

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion.

OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and net assets of The Delaware State Fair, Inc. as of December 31, 2017 and 2016 and its activities and changes in net assets for the years then ended in accordance with the basis of accounting the Organization usesfor income tax purposes described in Note 1.

Basis of AccountingWe draw attention to Note 1 of the financial statements, which describes the basis ofaccounting. The financial statements are prepared on the basis of accounting the Organization uses for income tax purposes, which is a basis of accounting other thanaccounting principles generally accepted in the United States of America. Ouropinion is not modified with respect to this matter.

Dover, DelawareApril 4, 2018

See notes to financial statements.

2017 2016Current Assets

Cash and cash equivalents 2,146,468$ 1,558,977$ Accounts receivable 569,803 372,244 Interest receivable 22,376 19,139 Prepaid expenses 85,790 86,506

Total Current Assets 2,824,437 2,036,866

Property and EquipmentBuildings, improvements and equipment 35,301,698 35,124,892 Land 364,182 364,182

35,665,880 35,489,074 Less: Accumulated depreciation 22,136,037 21,125,268

Net Property and Equipment 13,529,843 14,363,806

Other AssetsInvestments, at fair value 14,428,744 14,021,736 Investment, at cost 155,628 155,628

Total Other Assets 14,584,372 14,177,364

Total Assets 30,938,652$ 30,578,036$

ASSETS


STATEMENTS OF FINANCIAL POSITION - INCOME TAX BASIS


Exhibit A

2017 2016Current Liabilities

Current portion of note payable 347,656$ Accounts payable 331,505$ 328,551 Retirement contributions payable 36,974 39,546 Deposits 500 1,250 Deferred income 854,895 372,316

Total Current Liabilities 1,223,874 1,089,319

Long-Term LiabilityNote payable, net of current portion shown above 1,349,437

Total Liabilities 1,223,874 2,438,756

Net AssetsUnrestricted:

Contributed capital 366,730 352,730 Cumulative excess of revenue and support

over expenses 29,348,048 27,786,550

Total Net Assets 29,714,778 28,139,280

Total Liabilities and Net Assets 30,938,652$ 30,578,036$

LIABILITIES AND NET ASSETS

Exhibit B


2017 2016

Revenue and Support 6,716,173$ 6,464,947$

Operating Expenses 6,008,527 6,049,678

Income Before Depreciation 707,646 415,269

Depreciation Expense 1,013,118 1,104,589

Loss From Operations (305,472) (689,320)

Other Income (Expense)Interest and dividend income 494,259 393,351 Interest expense (71,745) (85,724) Gain on sale of property and equipment 1,481 Net realized and unrealized gains on investments 1,442,975 436,902

Other Income, Net 1,866,970 744,529

Excess of Revenue and Support Over Expenses 1,561,498 55,209

Issuance of Shares 14,000 15,000

Increase in Unrestricted Net Assets 1,575,498 70,209

Unrestricted Net AssetsBeginning of year 28,139,280 28,069,071

End of year 29,714,778$ 28,139,280$


STATEMENTS OF ACTIVITIES AND

YEARS ENDED DECEMBER 31, 2017 AND 2016

CHANGES IN NET ASSETS - INCOME TAX BASIS


2017 2016Cash Flows From Operating Activities

Cash received from sales, concessions, and rentals 6,999,139$ 6,129,121$ Cash paid to suppliers and employees (6,006,125) (5,983,250) Interest and dividends received 491,022 386,822 Interest paid (71,745) (85,724)

Net Cash Provided By OperatingActivities 1,412,291 446,969

Cash Flows From Investing ActivitiesPurchase of property and equipment (179,155) (165,212) Proceeds from sale of property and equipment 1,481 Purchase of investments (2,252,718) (4,990,805) Proceeds from sale of investments 3,288,685 4,414,089

Net Cash Provided By (Used For) InvestingActivities 858,293 (741,928)

Cash Flows From Financing ActivitiesIssuance of shares 14,000 15,000 Repayments of note payable (1,697,093) (332,174)

Net Cash Used For FinancingActivities (1,683,093) (317,174)

Net Change In Cash and Cash Equivalents 587,491 (612,133)

Cash and Cash EquivalentsBeginning of year 1,558,977 2,171,110

End of year 2,146,468$ 1,558,977$

STATEMENTS OF CASH FLOWS - INCOME TAX BASIS



Exhibit C

2017 2016

Excess of Revenue and Support Over Expenses 1,561,498$ 55,209$

Adjustments To Reconcile Excess of Revenueand Support Over Expenses To Net CashProvided By Operating Activities

Depreciation 1,013,118 1,104,589 Gain on sale of property and equipment (1,481) Net realized and unrealized gains on investments (1,442,975) (436,902)

(Increase) decrease in:Accounts receivable (197,559) 149,232 Interest receivable (3,237) (6,529) Prepaid expenses 716 31,908

Increase (decrease) in:Accounts payable 2,954 (124,529) Retirement contributions payable (2,572) 244 Deposits (750) Deferred income 482,579 (326,253)

Net Cash Provided By Operating Activities 1,412,291$ 446,969$

RECONCILIATIONS OF EXCESS OF REVENUE AND SUPPORT OVEREXPENSES TO NET CASH PROVIDED BY OPERATING ACTIVITIES


NOTES TO FINANCIAL STATEMENTS


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Note 1 - Summary of Significant Accounting Policies

Organization and Business Activity

The Delaware State Fair, Inc. (the Fair), a not-for-profit Delaware corporation, was initially formed in 1919, for the purpose of promoting and encouraging agriculture, horticulture and domestic arts for the information and betterment of the inhabitants of rural communities within the State of Delaware.

The Fair offers shares ($2.50 par value) for sale to the general public. The organization has authorized 12,000 shares of which 8,138 and 8,110 are issued and outstanding at December 31, 2017 and 2016, respectively. Shareholders have certain rights and obligations, including the annual election of the Fair’s Board of Directors. Current Fair policy provides that on an annual basis, each shareholder shall receive one gate pass good for the ten days of fair together with an invitation to the annual shareholders’ dinner.

No part of the Fair’s assets, earnings or revenues inures to the benefit of any shareholder.

Basis of Accounting

The Fair’s policy is to prepare its financial statements on the accounting basis used for federal income tax purposes. The income tax basis of accounting differs from accounting principles generally accepted in the United States of America. The primary differences in the financial statements of the Fair using the income tax basis as opposed to using accounting principles generally accepted in the United States of America are the accounting of its unconsolidated subsidiary at historical cost and the accelerated method used for the depreciation of property and equipment.

Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.




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Cash and Cash Equivalents For purposes of the statements of cash flows - income tax basis, the Fair

considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

The Fair maintains its cash in bank accounts at high quality financial institutions.

The balances, at times exceed federally insured limits. Advertising Advertising costs are expensed as incurred and total $94,870 and $99,912 for the

years ended December 31, 2017 and 2016, respectively. Property and Equipment Purchased property and equipment is stated at cost, and donated assets are

recorded at fair market value as of the date of donation. Depreciation is calculated using straight-line and accelerated methods over the estimated useful lives of the assets. Maintenance and repair costs are expensed as incurred. Gains and losses on sales or retirements are reflected in income.

Income Taxes The Fair qualifies as a tax-exempt organization under Section 501(c)(3) of the

Internal Revenue Code and its activities are generally not subject to income tax. Investments The Fair has investments in marketable securities consisting of common stocks,

exchange traded funds, mutual funds and real estate. Marketable securities are stated at fair value, and unrealized holding gains and losses are included in income.

Purchases and sales of securities are recorded on a trade-date basis. Interest

income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.




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Management’s Review

Management has evaluated all subsequent events through April 4, 2018, the date the financial statements were available to be issued.

Note 2 - Investments

The following is a summary of the Fair’s investments:

Gross Gross Unrealized Unrealized Fair

2017 Cost Losses Gains Value

Common stocks $ 1,005,295 $ (18,267) $ 103,756 $ 1,090,784 Exchange traded funds 4,727,497 (4,223) 1,220,181 5,943,455 Mutual funds 7,066,377 (64,231) 337,298 7,339,444 Real estate 48,880 (843) 7,024 55,061

Total $ 12,848,049 $ (87,564) $ 1,668,259 $ 14,428,744

Gross Gross Unrealized Unrealized Fair

2016 Cost Losses Gains Value

Common stocks $ 1,189,142 $ (44,230) $ 66,230 $ 1,211,142 Exchange traded funds 4,704,789 (79,425) 530,921 5,156,285 Mutual funds 7,674,783 (189,723) 114,527 7,599,587 Real estate 56,631 (1,909) 54,722

Total $ 13,625,345 $ (315,287) $ 711,678 $ 14,021,736




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Return on investments is comprised of the following:

2017 2016

Interest and dividends $ 494,259 $ 393,351 Realized gains (losses) 258,671 (132,805) Unrealized gains 1,184,304 569,707Investment fees (64,380) (60,103)

Total $ 1,872,854 $ 770,150

The gross realized gains from the sales of securities for the years ended December 31, 2017 and 2016 are $283,833 and $58,271, respectively. The gross realized losses from sales of securities for the years ended December 31, 2017 and 2016 are $25,162 and $191,076, respectively.

Fair value of investments is determined based upon a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2 Inputs to the valuation methodology include:

Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in

inactive markets; Inputs other than quoted prices that are observable for the

assets or liability; Inputs that are derived principally from or corroborated by

observable market data by correlation or other means.




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If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2017 and 2016.

Common Stocks: Valued at the closing market price reported on the active market in which the individual securities are traded.

Exchange Traded Funds: Valued at quoted prices as reported on the active market in which the funds are traded.

Mutual Funds: Valued at quoted prices as reported on the active market in which the mutual funds are traded.

Real Estate: Valued at quoted prices as reported on the active market in which the real estate investment trusts are traded.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Fair believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following tables set forth by level, within the fair value hierarchy, the Fair’s investments at fair value.




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2017 2016 Level 1 Common Stocks Energy $ 188,527 $ 127,469 Consumer staples 247,484 297,783 Health care 148,938 239,857 Consumer discretionary 58,547 Industrial 11,677 Financials 75,250 29,818 Telecommunication services 232,293 240,827 Utilities 186,615 216,841 Total Common Stocks 1,090,784 1,211,142 Exchange Traded Funds U.S. equity funds 2,880,345 2,812,094 International equity funds 1,620,551 1,118,669 Taxable bond funds 690,620 538,897 Sector equity funds 751,939 686,625 Total Exchange Traded Funds 5,943,455 5,156,285 Mutual Funds U.S. equity funds 1,610,494 1,519,371 International equity funds 357,462 289,534 Tax-Exempt bond funds 420,962 484,580 Taxable bond funds 3,861,022 4,355,242 Alternative funds 778,254 743,081 Sector equity funds 311,250 207,779 Total Mutual Funds 7,339,444 7,599,587 Real Estate 55,061 54,722 Total Level 1 $ 14,428,744 $ 14,021,736




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Note 3 - Income Taxes

Certain activities conducted by the Fair may be subject to federal unrelated business income tax. Management has reviewed the tax positions and has determined that there are no current or deferred income tax obligations as of December 31, 2017 and 2016.

The Fair recognizes the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Management has evaluated the Fair’s tax positions and concluded that the Fair has taken no uncertain tax positions that require adjustment to the financial statements.

Note 4 - Investment, At Cost

The Fair owns approximately 77% of the outstanding shares of HRI. This investment is recorded at its historical cost.

Note 5 - Note Payable

The term note payable to PNC was paid off during the year ended December 31, 2017 and the associated interest rate swap contract was settled. The balance at December 31, 2017 and 2016 was $-0- and $1,697,093, respectively.

The Fair maintains an unsecured $2,850,000 revolving line of credit with PNC. The variable interest rate is 4.26% at December 31, 2017 and is based upon the daily LIBOR rate plus 275 basis points. The line of credit is renewed annually and has been extended until September 30, 2018. Among other things, the line of credit agreement contains covenants against pledging property owned by the Fair. The outstanding balance at December 31, 2017 and 2016 was $-0-.




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Note 6 - Retirement Plan

The Fair maintains a defined contribution pension plan covering substantially all employees. The Fair may make matching contributions. Such contributions totaled $41,020 and $46,182 for the years ended December 31, 2017 and 2016, respectively. In addition, the Fair may make annual discretionary profit sharing contributions at rates to be determined each year by the Board of Directors and allocated among participants in proportion to their compensation. Contribution rates were 4% and contributions totaled $30,661and $34,041 for the years ended December 31, 2017 and 2016, respectively.

Note 7 - Related Party Transactions

The fair leases real estate to HRI to be used in its operations on the DSF fairgrounds. The 15 year lease is effective January 1, 2015 and contains provisions for two successive five year renewals. Annual rent for the initial five year period ended December 31, 2019 is $500,000 and is payable monthly. Beginning in 2020, the annual rent is adjusted for the change in the specified Consumer Price Index with a minimum 1.5% annual increase. The lease provides for allocation between HRI and the Fair of various maintenance responsibilities for the property and also for the renegotiation of the rent after the initial term or once certain HRI bank debt obligations secured by the leasehold are retired, whichever comes first. Rental income from leases with HRI total $500,000 for the years ended December 31, 2017 and 2016.

Included in the Fair’s revenue and support for the years ended December 31, 2017 and 2016 are $45,062 and $49,962, respectively, of fair admission and show tickets purchased by HRI.

Included in the Fair’s accounts receivable at December 31, 2017 and 2016 are $48,714 and $49,151, respectively, of receivables due from HRI.

Included in the Fair’s accounts payable at December 31, 2017 and 2016 are $14,573 and $13,505, respectively, of payables due to HRI.

The Fair purchases goods and services from various businesses that are owned by or affiliated with certain members of the Board of Directors of the Fair or Harrington Raceway, Inc. These purchases include transportation services, outdoor equipment sales and maintenance services, electrical equipment and supplies, construction services and insurance brokerage and are conducted in the normal course of business.

SUPPLEMENTARY INFORMATION

Board of DirectorsThe Delaware State Fair, Inc.Harrington, Delaware

We have audited the financial statements of The Delaware State Fair, Inc. (the Organization)as of and for the years ended December 31, 2017 and 2016, and have issued our reportthereon which contains an unmodified opinion on those financial statements. Our audits wereconducted for the purpose of forming an opinion on the financial statements as a whole. Thesupplementary information is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting andother records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements andcertain additional procedures, including comparing and reconciling such informationdirectly to the underlying accounting and other records used to prepare the financialstatements or to the financial statements themselves, and other additional procedures inaccordance with auditing standards generally accepted in the United States of America.In our opinion, the information is fairly stated in all material respects in relation to thefinancial statements as a whole.

Dover, DelawareApril 4 , 2018

Independent Auditor's Report on the Supplementary Information

Schedule 1

2017 2016Fair

Camping 99,280$ 97,120$ Carnival 416,132 432,845 Concessions 694,020 644,059 Gate admission 1,049,366 1,065,097 Grandstand sales 1,891,682 1,654,958 Miscellaneous income 138,041 123,056 Sponsorships and donations 612,360 603,204 State appropriations and grants 97,291 121,614

CentreIce rental 219,594 186,952 Miscellaneous income 8,698 7,073 Programs 255,909 229,529 Public skate 88,364 92,430 Snack bar 84,689 95,568

Lease income - Harrington Raceway, Inc. 500,000 500,000 Rentals income 366,159 438,174 Other programs 194,588 173,268

Total Revenue and Support 6,716,173$ 6,464,947$


SCHEDULES OF REVENUE AND SUPPORT


Schedule 2

2017 2016

Advertising and marketing 171,195$ 206,170$ Bank fees 78,761 67,776 Donations 250 250 Employee benefits 221,227 241,419 Exhibitor expense 229,711 234,200 Grandstand entertainment and support 1,300,964 1,381,992 Grounds entertainment 197,429 185,426 Insurance 242,598 242,265 Janitorial and trash removal 94,319 97,470 Miscellaneous expense 55,454 61,338 Other expenses - Fair week 505,847 432,567 Other programs 56,454 69,939 Parking, police and highway service 138,828 162,083 Payroll taxes 116,108 112,433 Postage and office supplies 42,679 38,668 Professional fees 170,237 157,486 Program expense - Centre 68,462 66,121 Public safety, fire and first aid 166,021 160,886 Repairs and maintenance 239,854 264,013 Salaries 1,464,994 1,421,490 Snack bar - Centre 52,006 58,695 Taxes, licenses and memberships 8,827 13,844 Travel and entertainment 34,372 31,548 Utilities and fuel 351,930 341,599

Total Operating Expenses 6,008,527$ 6,049,678$


SCHEDULES OF OPERATING EXPENSES


the delaware state fair, inc. financial statements ......note 1 - summary of significant accounting...

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